Taxes When Living Aboard

[belizesailor]

Renouncing citizenship is a big step. I know a few who have, but I have no plans to do so (even though I have not lived there in almost a decade). I do still pay USA taxes, but no country where you have citizenship is going to miss the opportunity to tax you for something.


Think about it: If you renounce your USA citizenship, which country are you going to acquire citizenship in? You cant realistically be a "man without a country"...certainly not as an international cruiser.

[dwedeking2]

Originally Posted by belizesailor

You cant realistically be a "man without a country"

Unfortunately this is true. You have to pay someone for your right to exist.

[jmschmidt]

I have no problem with people who move anywhere to avoid taxes. It is everyone's duty to minimize their tax load. This country was founded on a tax revolt, a tax of only 10% on tea.

[cwyckham]

Originally Posted by valhalla360

It's about earned income because most countries will come after citizens for investment earnings even if they move out of the country and the complaint here revolves around the USA taxing earned income earned outside the country when most countries don't do this.

You are confusing profits from currency trading with the housing transaction. You've muddled the issue by incorporating the house in the example but it changes nothing.

If you convert $500k USD to $500kCanadian, stick it under your matress and sit on it while it goes up 15%, your cash is worth 15% more in USD. The fact that you had $500kC at the begining and at the end doesn't mean you didn't have an increase in value. Since it is in cash, the fact you haven't converted it back to USD is irrelevant. You played the currency market and won. The fact you did it unintentially is irrelevant. You had a capital gain.

The IRS only accepts USD so everything has to be converted to USD for the calculation purposes (just like canada will want everything converted to canadian dollars for thier purposes and any other country will want it converted to the local currency for thier purposes). You stared with $500kUSD and ended with the equivilent of $575kUSD, that's an extra $75kUSD that must be accounted for.

???????????

I'm not sure what's not getting through. Maybe I'm not being clear about the scenario and the fact that I'm a Canadian/US dual citizen. My location is in Canada which is under my name to the left, and I think I mentioned it earlier in the thread, but it just occurred to me that's maybe where your confusion is?

I'm making zero currency transaction in this scenario. I didn't convert $500k USD to buy a Canadian house. I made my money in Canadian dollars and used it to buy a Canadian house. I sold the house and got the same exact amount of Canadian dollars back. I made no conversions and I made no money. I have no profit.

Now I have to put in my US taxes and they insist that I convert everything to USD on the forms. Voila! A large and false capital gain appears and I need to find tens of thousands of dollars in cash from nowhere. That scares the hell out of me because the currency does fluctuate by 15% in a matter of months.

Hopefully that's more clear?

As far as all countries taxing investments of their expat citizens, that just isn't true. Canada is quite typical of the rest of the world. I am taxed on my Canadian investments wherever I am in the world. However, if I'm not resident in Canada and I have investments somewhere outside of Canada, then Canada doesn't care. Only the US and Eritrea would care in this case.

[svlamorocha]

Originally Posted by cwyckham

???????????

Now I have to put in my US taxes and they insist that I convert everything to USD on the forms. Voila! A large and false capital gain appears and I need to find tens of thousands of dollars in cash from nowhere. That scares the hell out of me because the currency does fluctuate by 15% in a matter of months.

Have you heard about the Qualified Business Unit concept? It is routinely used to use a different "functional currency" to calculate tax on foreign portfolios and rental properties (not sure about property where you live). I went through this when doing my tax planning a while ago.

[Brob2]

Originally Posted by jmschmidt

It is everyone's duty to minimize their tax load.

Where'dya get that from? Prudent for most, sure, but a duty? Like a patriotic or moral one?

[cwyckham]

Originally Posted by svlamorocha

Have you heard about the Qualified Business Unit concept? It is routinely used to use a different "functional currency" to calculate tax on foreign portfolios and rental properties (not sure about property where you live). I went through this when doing my tax planning a while ago.

No I haven't, but it sounds interesting. Sounds a bit like a corporate thing and not a personal tax strategy? That would be huge if it could work easily for a rental unit.

For a primary residence, I assume that you couldn't use the scenario which is fine as long as something doesn't come along to force an early sale of your home.

[Pelagic]

Originally Posted by belizesailor

You cant realistically be a "man without a country"...certainly not as an international cruiser.

Interesting!
Going the other way.... as a cruiser.....
What if you have dual nationality, living in neither..... which country has tax priority?

[sailorchic34]

Originally Posted by hellosailor

Sailorchick-

The reason is that "failure to file" in itself is illegal, and if at some point in the future someone in the IRS decides "Eh, this chick must have made Something, let's bring her in with fines, penalties,

Oddly the IRS says that if you made less then $10,000 a year you do not have to file. This as there is zero tax owed to the IRS for people making less then $10,000 a year. There's not even the ACA fine to pay when below $10,000. Of course it depends on a lot of things, capital gains, bonds and other things, I've never had. Yes its true, poor folks don't have to file a tax return. One of the few Bene's of being poorer.

On the other hand California will want you to file a state return, if you had something like $3500 or more.

Last year my income was basically zero. This year I made less then $3500, but because I'm self employed, I need to file to pay the SS taxes due.

[dwedeking2]

Originally Posted by Brob2

Where'dya get that from? Prudent for most, sure, but a duty? Like a patriotic or moral one?

moral

[svlamorocha]

Originally Posted by cwyckham

No I haven't, but it sounds interesting. Sounds a bit like a corporate thing and not a personal tax strategy?

That is not correct. QBU treatment is used by individuals all the time ,in fact it is covered in the advice provided by most serious US tax advisers to expats going into or out of the US.

Originally Posted by cwyckham

That would be huge if it could work easily for a rental unit.

It does and lots of US expats with foreign rental property and investment portfolios will use it. It is used by default.You just need an accountant who knows what attachments (outside the normal forms) to prepare in order to make the calculation in foreign currency and just the final conversion to US dollars.

Originally Posted by cwyckham

For a primary residence, I assume that you couldn't use the scenario which is fine as long as something doesn't come along to force an early sale of your home.

QBU is for property that generates tax deductions (ie not primary residence) but a usual trick in this situation is to rent it for a short period, most frequently to the same person who buys it. This is 100% legal, unlike the similar trick used to fake a 2-year principal residence.

This is not tax advice, just info to make you consider that maybe in this type of situation you need good and timely tax advice. With a bit of luck it is not too late.

In my corporate expat years I have used four of the large firms and KPMG was the best at this sort of thing. They still post on the web the info they used to give at pre-assignment briefings...

[achil]

Originally Posted by cwyckham

???????????

I'm making zero currency transaction in this scenario. I didn't convert $500k USD to buy a Canadian house. I made my money in Canadian dollars and used it to buy a Canadian house. I sold the house and got the same exact amount of Canadian dollars back. I made no conversions and I made no money. I have no profit.

Now I have to put in my US taxes and they insist that I convert everything to USD on the forms. Voila! A large and false capital gain appears and I need to find tens of thousands of dollars in cash from nowhere. That scares the hell out of me because the currency does fluctuate by 15% in a matter of months.

If you have zero gain in Canada, then you have Zero gain in the US regardless of what the conversion rate is. Instead of all the worrying, hire yourself an account in the US to do your US taxes.

[valhalla360]

Originally Posted by cwyckham

???????????

I'm not sure what's not getting through. Maybe I'm not being clear about the scenario and the fact that I'm a Canadian/US dual citizen. My location is in Canada which is under my name to the left, and I think I mentioned it earlier in the thread, but it just occurred to me that's maybe where your confusion is?

I'm making zero currency transaction in this scenario. I didn't convert $500k USD to buy a Canadian house. I made my money in Canadian dollars and used it to buy a Canadian house. I sold the house and got the same exact amount of Canadian dollars back. I made no conversions and I made no money. I have no profit.

Now I have to put in my US taxes and they insist that I convert everything to USD on the forms. Voila! A large and false capital gain appears and I need to find tens of thousands of dollars in cash from nowhere. That scares the hell out of me because the currency does fluctuate by 15% in a matter of months.

Hopefully that's more clear?

As far as all countries taxing investments of their expat citizens, that just isn't true. Canada is quite typical of the rest of the world. I am taxed on my Canadian investments wherever I am in the world. However, if I'm not resident in Canada and I have investments somewhere outside of Canada, then Canada doesn't care. Only the US and Eritrea would care in this case.

I suspect you are in for a world of hurt if you think you can just move money out of canada and invest overseas and canada won't want a cut of the captial gains. If that was the case, no canadian would ever invest in candian investments because they could skip out on taxes by picking a tax haven country and just investing there.

You've changed the house example a bit as you originally implied you moved from the USA to canada with the implication you used assets earned in the USA to buy the house (hence converting from USD to CD). But even so, every country requires any tax calcualtions to be done in their local currency. Yes, that can result in currency appreciation and capital gains but there are plenty of exceptions related to a personal residence, so I'm sure a decent tax guy could avoid the problem.

Bottom line, there is nothing paticularly evil or nasty about the tax system...other than we all hate taxes but that applies to all countries.

The only countries that are essentially tax free...I wouldn't want to live there.

[cwyckham]

Originally Posted by valhalla360

I suspect you are in for a world of hurt if you think you can just move money out of canada and invest overseas and canada won't want a cut of the captial gains. If that was the case, no canadian would ever invest in candian investments because they could skip out on taxes by picking a tax haven country and just investing there...

.

If I'm a resident of Canada, then no I can't just move my money out and invest elsewhere without being taxed by Canada. However, if I'm not a resident of Canada (and not a "deemed resident"), then I can absolutely move my money anywhere I want and invest it without Canada wanting a piece.

Once I leave, I leave. I know because I've done it. I would still be taxed on any investments I left behind in Canada, but not on anything outside of Canada.

As a cruiser, though, one must be careful of the residency thing. In general, the tax treaties and laws are all written such that you have to be a tax resident somewhere. If you're off traipsing around the world, then it will usually be the last place you lived.

Canada will consider you owning property and having bank accounts back in Canada to mean that you're still a deemed resident for tax purposes.

[cwyckham]

Originally Posted by svlamorocha

That is not correct. QBU treatment is used by individuals all the time ,in fact it is covered in the advice provided by most serious US tax advisers to expats going into or out of the US.


It does and lots of US expats with foreign rental property and investment portfolios will use it. It is used by default.You just need an accountant who knows what attachments (outside the normal forms) to prepare in order to make the calculation in foreign currency and just the final conversion to US dollars.

QBU is for property that generates tax deductions (ie not primary residence) but a usual trick in this situation is to rent it for a short period, most frequently to the same person who buys it. This is 100% legal, unlike the similar trick used to fake a 2-year principal residence.

This is not tax advice, just info to make you consider that maybe in this type of situation you need good and timely tax advice. With a bit of luck it is not too late.

In my corporate expat years I have used four of the large firms and KPMG was the best at this sort of thing. They still post on the web the info they used to give at pre-assignment briefings...

This is great stuff. Thank you. We're probably a couple years away from buying a house, but I will certainly explore this. I better start saving up for accountant and lawyer fees now!